Binary Options

The binary options industry is one of the most recent parts of the financial markets. Binary options are quite popular in the ranks of speculators by giving them the opportunity to open a call (up) or a put (down) position of an underlying object (currency pairs, commodities, indices or some selected stocks etc). In this case, you only have to predict the rise or fall of an asset's price during a given timeframe, without owning the above asset.

The whole procedure doesn't come along with the bid/ask rule (supply/demand), but it follows a fixing (median) price of each symbol as the possible strike price. That seems quite as a fair deal but on the other hand although there aren't any brokers' spreads the profit payouts seldom reach 90% or above (it isn’t a 1:1 risk to reward ratio). Mathematically, a speculator needs an approximately 55% winning ratio to break even.

For example, we open a $100 call (buy) binary option of the Google stock (GOOG) at $730.00 at 13:15 GMT. The selected option has a predetermined expiry date at 14:00 GMT the same day and gives a 85% profit payout. Our aim is by taking this kind of option to be in-the-money at the time mentioned above. So, if the price reaches e.g. 730.05, our capital will be $185. In a contrary situation, if the price reaches e.g. $729.60 our invested amount will be wiped out ($100).

In finance, a binary option is a high profitability speculation type and it should be treated with comprehensive knowledge and restraint, as any other financial product. This isn't an up/down game of chance.

                               A typical sample of a Call/Put Binary Option based on EURUSD currency pair (by ZuluTrade platform)

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